If you run a cannabis business, you already know: IRS Code 280E is one of the biggest financial hurdles in the industry. Because cannabis is still federally illegal, 280E disqualifies cannabis operators from deducting most ordinary business expenses — rent, payroll, utilities, marketing, even insurance.
The result? Many cannabis businesses face effective tax rates of 60 to 80 percent, even when their margins are thin. That cash drain can cripple growth and make saving or expanding almost impossible.
But while 280E limits what you can deduct, it doesn’t limit how you build, store, or protect your wealth. One increasingly popular solution is Indexed Universal Life (IUL) insurance — a legal, tax-advantaged tool that helps owners turn post-tax profits into long-term, tax-free wealth.
What an IUL Does, and Why It Matters.
An Indexed Universal Life policy combines life insurance protection with a cash-value account that grows tax-deferred, often tied to a market index like the S&P 500. You get the upside potential of market-linked gains without the downside risk, since IULs have a built-in floor that protects against market losses.
When structured properly, an IUL allows the policyholder to borrow or withdraw funds tax-free, using the cash value for retirement income, business opportunities, or emergencies — all while keeping the death benefit in place for legacy or succession planning.
How Cannabis Entrepreneurs Use IULs to Offset 280E.
1. Executive Bonus Plans.
A company can issue an executive bonus to an owner or key employee and use it to fund a personally owned IUL policy. The bonus may be deductible as compensation, giving the business a legitimate write-off while the executive builds a private, tax-free wealth account.
SEO insight: This approach is one of the few 280E-friendly tax planning strategies that directly benefits both the business and the individual.
2. Creating Private Liquidity.
Once the IUL’s cash value grows, the owner can borrow against it to finance expansion, payroll, or equipment — without paying bank interest rates or creating taxable income.
In an industry where banking access is limited, this creates an internal financing system that keeps money moving even when capital is tight.
3. Planning for Succession and Legacy.
The IUL’s death benefit can fund buy-sell agreements, protect business partners, or leave tax-free wealth to heirs. It ensures continuity if something happens to a founder — and keeps ownership transfers out of probate or taxation traps.
Example: Shifting Taxed Income into Tax-Smart Wealth.
Imagine your dispensary nets $400,000 this year, but 280E inflates your tax burden to 70%. You bonus yourself $100,000 and fund an IUL. That $100K is taxed once as income, but from then on it:
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Grows tax-deferred,
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Can be accessed tax-free through loans, and
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Creates tax-free legacy value for your family or partners.
You’ve effectively shifted taxable business income into a protected personal wealth engine — turning 280E’s burden into long-term opportunity.
Work With the Right Team.
To implement this correctly, work with:
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A licensed life-insurance professional who understands the cannabis industry and IUL design,
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A CPA experienced with 280E tax compliance, and
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A tax attorney who can validate your compensation structure.
This collaboration ensures the strategy is both compliant and optimized for your personal financial goals.
The (Toke)away.
You can’t repeal 280E — but you can outsmart it.
A properly structured Indexed Universal Life policy allows cannabis entrepreneurs to:
- Keep more post-tax profit
- Tax-advantaged liquidity
- Protect their business and legacy
If you’re serious about building generational wealth in the cannabis industry, IULs may be your most powerful — and underused — financial tool.
